GameStop: Reddit Where Credit is Due

The GameStop affair is a tempest in a teapot, and an excuse for everyone to project their political and market biases. This is a classic short-squeeze, like the VIX blow-up in early 2018. The only difference is that this one was catalyzed by retail investors on Reddit. We don’t believe they did it single-handedly, without opportunistic hedge funds and prop-desks piling on. We don’t see retail participation here as classic evidence of a market top. Retail blow-offs are in over-loved momentum stocks – this is a sector-rotation into under-loved cyclicals given up for dead after the pandemic lockdowns. We can’t know to what extent the recent round of “stimulus” payments fueled this. There is so far no specter of systemic credit risk here. Equities are in a long-overdue correction. It won't be long-lived: the usual risk indicia – the dollar, Treasury yields and credit spreads – haven’t moved. Steady oil prices suggest no business cycle risk. We predict this will all be forgotten in a week.